Gold rebounded strongly on Friday as fading expectations of a Federal Reserve interest rate hike gave the metal fresh support.
Spot gold climbed as much as 1% to nearly US$4,400 an ounce, recovering from profit-taking in the previous session. The move extended gold’s strongest weekly performance since January and pushed prices to their highest level since early June.
Softer US inflation data, combined with renewed hopes of peace in the Middle East, have reduced concerns that the Fed will need to tighten policy aggressively. Earlier, fears of prolonged inflation linked to the US-Iran conflict had driven expectations of higher interest rates, weighing on non-yielding assets such as gold for several months.
Those concerns have now eased. Markets are increasingly pricing in the likelihood that the Fed will leave rates unchanged at its September meeting. The CME FedWatch Tool currently assigns only a 31% probability of a rate hike in September, down sharply from 55% a week earlier.
“As we expect the Fed not to raise interest rates, gold price therefore still has further upside potential,” Commerzbank said in a note.
Following its recent rally, gold is now up 0.3% for the year. Before the Fed’s next policy decision, investors will closely watch upcoming US employment reports and Federal Reserve Chair Kevin Warsh’s remarks at the Jackson Hole symposium later this month for further clues on the path of monetary policy.
